Storage/Loading/Unloading - Transportation
September 28, 2013

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http://www.internationallawoffice.com/newsletters/detail.aspx?g=a9eeb29a-79fa-4e20-aa34-875ed2ca19af

Contaminated sulphur shipment leads to caustic dispute

September 18, 2013

Background

In November 2003 a Beijing industrial and trade company imported 10,000 tons of bulk sulphur from the United Arab Emirates under cost and freight terms. The goods were carried from Ruwais, United Arab Emirates to Xin Gang, China by a ship belonging to a Maltese marine company. The Beijing company took out an insurance policy for the goods against all risks amounting to $968,000.

The ship departed Ruwais on November 6 2003. With no advance notice to the Beijing company, the ship changed its destination and arrived at the port of Qinghuangdao, China on December 5 2003, and even issued a notice of readiness without the consent of the Beijing company. The Beijing company was thus compelled to discharge the goods at Qinghuangdao. When offloading the goods, it was found that part of the shipment had been seriously contaminated. The Beijing company applied to the Tianjin Maritime Court for preservation of maritime claims and entrusted a local commodity inspection corporation to inspect the goods, while also notifying its insurer of the case.

The Beijing company later applied to the court to arrest the ship at Qinghuangdao. The Shipowners' Mutual Protection and Indemnity Association issued a guarantee letter for this issue amounting to $400,000. During this period, the insurer commissioned China Marine Service Company Ltd to conduct an investigation concerning the ship and the cause of the goods' contamination. It was concluded that the contamination was due to the carrier having failed both to make the ship seaworthy and to ensure safe storage of the goods in the ship before departure. In the meantime, a quality inspection report issued by the Qinghuangdao Inspection and Quarantine Bureau stated that all of the goods were contaminated to various degrees, and that the net loss of the goods amounted to 2,678.9 tons, which devalued the goods by Rmb2,544,375.

On January 9 2004 the Beijing company took legal action against the marine company at the Tianjin Maritime Court. At the Beijing company's request, the insurer subsequently conducted a careful investigation, following which it paid an indemnity of Rmb2,187,049.70 to the company and obtained the right of legal subrogation for the recovery claim.

Issues

From the evidence obtained during the investigations, it was found that there were three primary issues in the case.

Whether insurer was entitled to subrogation right
The Beijing company noted that according to the sales contract, the seller was responsible for the arrangement of shipping by chartering, while it had no knowledge of this arrangement. Furthermore, as the shipowner, the defendant had delivered the goods to the Beijing company on submission of the bill of lading. Therefore, the defendant had carried out the marine transportation and was liable for damages to the goods.

The Beijing company obtained the bill of lading under the terms and conditions of the contract and a letter of credit, and also made full payment for the goods, so it committed no fraud or ill-intentioned actions. The insurer obtained the right of subrogation after making a reasonable reimbursement to the Beijing company and receiving the letter of subrogation. As such, it was legal for the insurer to take action against the defendant in order to protect its legitimate rights and interests.

Cause of damage to goods
The two parties had heated arguments on the cause of the damage to the goods. The inspection report submitted by the defendant contrasted significantly with the facts. The actual cause of the damage was the carrier's failure to exercise due diligence when loading and storing the goods. Given that sulphur is highly corrosive, the defendant should have washed the cabin before loading the goods; its failure to carry out this important step was the primary cause of the damage. However, the defendant also failed to take sufficient measures to protect the goods, causing significant surface damage to the goods. Furthermore, in addition to snow and water leakage in the cabin, the damage was exacerbated by the defendant's failure to divide the goods into separate cabins. Thus, the plaintiff argued, the carrier was liable for the damage.

Whether plaintiff's inspection report had legal force
The defendant attempted to promote confusion over the inspection report by claiming that it constituted several other types of evidence and argued that the report was not legally binding on the grounds that the plaintiff's inspector was not present at the court proceedings. The plaintiff pointed out that an inspection reports constitutes a single type of evidence, and that the content and conclusions of the report in question were an objective reflection of the facts. Therefore, it was undoubtedly legally valid.

Settlement

Under court mediation, the two sides reached a settlement agreement. According to the agreement, the plaintiff would:

·       be the only party capable of exercising the right of action; and

·       on receipt of compensation from the defendant, issue a receipt and release letter to the defendant by which it abandoned all of its rights to make claims or preservation of property applications concerning this dispute to any court or arbitration procedure against any party, including:

o   the defendant;

o   the ship's manager;

o   the operator;

o   the charterer;

o   the insurer; or

o   the employer.

Eventually, this case was satisfactorily settled after the defendant paid the indemnity in a lump sum to the plaintiff.